Physical natural gas for Wednesday delivery was able to gain ground in Tuesday's trading as weather-driven gains in the Northeast and Appalachia were able to undo broad losses seen in California, the Rockies, Gulf Coast and Texas.
The NGI National Spot Gas Average rose 5 cents to $2.56, but in the Northeast some gains passed $1. Futures trading was a far different story, with the market making a sympathetic move lower with cascading crude and products markets. At the close August had given up 22.3 cents to $2.764, nearly erasing all of last week's gains. September was lower by 22.3 cents as well to $2.758. August crude oil dived $2.39 to $46.60/bbl.
Despite the big selloff in the futures arena, traders were pleased. "We held the $2.75 support area," a New York floor trader told NGI, “and you had a big drawback in the rest of the products. Crude was down $2.50 and the RBOB was down 9 cents. The heat[ing oil] was down 6.5 cents, so you had a big, big drawdown across the board on everything, and that didn't help the natural gas.
"$2.75 is a good support, but whenever you have that big a move in the oil, you will get a sympathetic move with the natural gas. I think this is the low for the week for natural gas."
Adding to the bearish frenzy were reports that previously shut-in production was returning. "Lower 48 dry gas production is rebounding from the 168-day low it hit last week, though some regional volumes still remain affected," said industry consultant Genscape in a Tuesday morning report. "Spring Rock's Daily Pipe Flow estimate has Lower 48 production at 72.03 Bcf/d, nearly 0.6 Bcf/d above June 28 when daily volumes sank to their lowest point since early January. However, today's volumes are still 0.42 Bcf/d off the last 30-day average as some regional issues are being resolved while others remain.
"West Virginia volumes are recovering from last month's severe flooding and operational disruptions around the MarkWest Sherwood complex. Columbia Gas (TCO) receipts from Sherwood resumed on July 1 after a seven-day shutdown. Receipts there have been averaging about 120 MMcf/d; prior to the event they were averaging 223 MMcf/d.
"In the Gulf of Mexico, Destin offshore production continues to be operational albeit at slightly lower levels following last week's explosion at the Enterprise Pascagoula Gas Processing Plant. Disrupted gas is flowing out of the area via the VKGS and Transco systems.
In physical market trading, prices at Northeast points scored triple-digit gains as a heat wave was forecast to pummel the Atlantic Seaboard. Forecaster AccuWeather.com said Tuesday's 77-degree high in Boston was expected to jump to 93 Wednesday and settle back to 84 Thursday. The normal high in Boston this time of year is 81. New York City's 85 high Tuesday was seen reaching 90 Wednesday and 93 Thursday, nine degrees above normal.
Next-day gas at the Algonquin Citygate rose 96 cents to $3.30, and gas at Iroquois, Waddington added 33 cents to $2.93. Gas on Tennessee Zone 6 200 L vaulted $0.98 to $3.28.
Gas on Texas Eastern M-3, Delivery added 21 cents to $1.67, and packages bound for New York City on Transco Zone 6 soared $1.09 to $2.66.
Next-day power prices also made incremental gas purchases for electric power generation worthwhile. Intercontinental Exchange reported on peak power Wednesday at the ISO New England's Massachusetts Hub gained a stout $13.51 to $44.20/MWh, and power at the PJM West terminal rose $9.02 to $43.16/MWh.
Next-day quotes at major market centers were soft. Gas at the Chicago Citygate shed 2 cents to $2.72, and deliveries to the Henry Hub were off a nickel to $2.82. Gas on Kern River fell 6 cents to $2.45 and parcels destined for the PG&E Citygate changed hands 9 cents lower at $2.97.
Weather forecasts moderated somewhat over the long weekend, though the basic outlook is intact.
"Above-average period anomalies are expected across the eastern two-thirds of the nation during the six-10 day period, focused over the central U.S.," said WSI Corp. in its Tuesday morning report. "Period anomalies will range below average over the West. [Tuesday's] forecast is a little cooler over the West and South but a bit warmer over the Plains, Midwest and Northeast. As a result, CONUS PWCDDs are down 0.8 to 64.5 for the period.
"A -PNA [Pacific North American] pattern offers a general downside risk to the CONUS, with the greatest risk being in the north-central U.S. and parts of the Southeast. The Southwest and Northeast have upside risk, based in part by the GFS."
Risk managers see limited hedging opportunities. "Natural gas continues to move higher on warmer than normal temperatures and short-covering," said Mike DeVooght, president of DEVO Capital Management, in a weekly note to clients. "Also giving the market a boost is end-user buying, locking in the forward strip.
"Now that we have seen the short-covering rally we thought was possible, we feel current levels represent attractive levels for producers to start to establish forward sales. But since we are not that bearish, we would establish hedges with either floors or collars."